I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

I have a feeling that the Columbia Journalism Review might benefit from not commenting upon the economics of newspapers. Or at least try to find out something about the economics of corporations before doing so. What we’ve got is essentially a screed protesting about the way that the Washington Post Company is handing money out to shareholders rather than reinvesting in the business. This entirely fails to recognise that handing the shareholers’ money back to the shareholders can indeed be the entirely rational and sensible thing to do.

By handing all that cash back to shareholders while disinvesting in its newspaper, the company is effectively saying that spending money on the hallowed Post is like throwing it down the rathole—it sees no possibility of making a return on any net investment there. That may actually be true, but it’s bad for the country, and it’s not very Swashbuckling Capitalist of them. The Post won’t take risks betting its cash on its namesake news organization’s future. It will unload nearly a billion dollars into its own pitiful stock. The “disgorge the cash” philosophy, which masquerades as flinty shareholder capitalism, is actually insecurity and weakness—an inability or unwillingness to invest that buyback/dividend money to come up with new products or to shore up old ones.

Companies, businesses, have a natural lifespan. When technology changes that little niche that they were exploiting disappears and thus there’s no rationale for the existence of the company at all.

Further, expertise, the firm’s social or institutional capital, is niche specific: knowing how to run one of the great political newspapers in the world does not necessarily translate into knowing how to create apps or, perhaps more relevantly, run an education company. As the Post’s own travails with Kaplan rather show.

All of which means that, if you really do believe that there’s no return to be made on investing further in the core business then what you should be doing is returning the money to shareholders. It is, after all, their money anyway. Over and above that it is in fact a great deal cheaper for said shareholders, now they’ve got their own money back, to seek out alternative investments perhaps in new products.

Which brings us to the economics of the newspaper business. I don’t think it’s exactly news to anyone that the current structure of the business is dead. All that’s worth arguing about is how long that current model will last, not whether.

Newspaper revenues traditionally come in three parts. Subscription and newsstand sales, yes, that’s one source. But as it happens that source has, historically and to a rough level of accuracy, covered the costs of actually printing and distributing the paper itself. The other two sources of revenue are advertising: both display advertising and classifieds. It’s that last which is really the undoing of the great American newspapers. Most were, for decades, the only classified advertising game in their own towns: monopolies are usually regarded as great profit opportunities. They have now lost (OK, are losing) this revenue for entirely technological reasons. Craigslist, Monster.com, even e-Bay, are entirely eating this market. Many newspapers do have electronic versions of their classifieds, yes, but not being a monopoly anymore radically cuts profitability. This leaves only display advertising to pay for the newsroom itself.

This can be done, most English newspapers manage it (for historical reasons the national newspapers have always had very small classifieds sections) but apparently it cannot when the far larger establishments of US big city newspapers are concerned.

All of which means that the basic business model of the Post, as with many other of the big city newspapers, is doomed. In which case, what should the managers of the company be doing?

Yes, that’s right, they should be sweating those soon to be valueless, soon to be redundant assets, for as much cash as possible. Certainly not investing more into a failing business, but getting as much cash out as possible to give back to shareholders. Who then, having got their own money back, can consume or reinvest it as they wish. And yes, it is very much a standard assumption in the economics of investment that they can do this more cheaply, better and with greater efficiency than the managers of the Post itself could do it for them.

In short, what the CJR is whining about is that the managers of the Washington Post are actually being rational and sensible.

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